The Kolkata Bench Income Tax Appellate Tribunal (ITAT) does not have ordered any TDS on payment of fees for technical services (FTS) to non-residents not having a Permanent Establishment (PE) in India.
The two-member bench of Rajpal Yadav (Vice President) and Rajesh Kumar (Accountant Member saw that the payment incurred to the non-resident recipients who do not have any permanent establishment in India and indeed the services furnished would not be the type of royalty or the fee towards technical services.
The taxpayers firm is registered and has been started in India and would be involved in the business of construction and development of the projects in the year. The taxpayer was involved in the construction and development project said to be the Atmosphere in Kolkata in the current year. The taxpayer’s company entered into an agreement with M/s Web Structures Pte. Ltd., having a registered office at 146, Robinson Road, Singapore.
M/s Web Structures Pte. Ltd. is a structural engineering consultancy firm and the services furnished to the taxpayer’s company are the kind of concept and schematic design, design development, detailed design, contract documentation, tender and recommendation, construction, and other work.
Read Also: Bangalore ITAT: No TDS Levy on Non-Resident Professional Services
In the year the taxpayer has furnished a sum of Rs 1,552,56,351 to the consultancy firm as a consultancy fee to furnish the mentioned services. The specified firm would be the non-resident which has been launched in Singapore and does not secure any permanent establishment in India, as per the taxpayer. As the recipient is a non-resident and did not secure any permanent establishment in India, the provisions of Section 195(1) of the Act does not subject to be applied.
As per AO, the taxpayer was responsible to deduct tax at source through the payment incurred to the company. The payment to the foreign firm would be covered under Article 12(3)(a) of the Treaty and forms a payment towards royalty. As per AO, the services are directed via M/s Web Structures Pte. Ltd to the taxpayer excluding the supply of design/drawings are ancillary and subsidiary to the application and enjoyment of rights, property, or information to which the payment expressed in Article 12(3)(a) of the Treaty incurred to the foreign company, hence the part of payment concerned to the supply of managerial consultancy along with the technical services beneath the agreement between the organization comes beneath the class.
Hence the whole payment beneath the Treaty to M/s Web Structures Pte. Ltd would be the kind of payment for the royalty and has no cost for the technical services. AO sees that as there was no data present for M/s Web Structures Pte. Ltd. as the beneficial owner of the payment received under Article 12(2), therefore, domestic tax rates were given, and tax was computed to be paid.
Order of AO has been confirmed by the CIT(A) through containing the payment incurred to the foreign firm through the taxpayers comes under the definition of Article 12 of the DTAA between India and Singapore and was responsible for deduction of tax under section 195 of the Income Tax Act.
The taxpayer furnished, he is held with no permanent establishment in India and was giving the service only from Singapore, the provisions of Section 195 of the Income Tax Act are subject to be applied.
Department, the taxpayer obtained the services in return for the royalty and fee for taxes furnished to the foreign company covered under Article 12(4)(a) of the Treaty. Hence the petition of the taxpayer might be disregarded.
Read Also: Income Tax & RBI Rules for NRIs Buying Indian Properties
ITAT, the points set out in Article 12(4)(a) of the Tax Treaty do not meet, and the services would not be furnished beneath the technical knowledge and others through using them alone in the forthcoming time nor it poses any drawing or design been provided to the assessee that can be used alone.
ITAT said AO to eliminate the demand.
